Watch the Interview of Dr Lopez-Claros
Dr Augusto Lopez-Claros, the Director of Global Indicators and Analysis with the World Bank, was interviewed by Professor Fariborz Moshirian, the Institute of Global Finance’s Director. The interview centres on the concerns of global prosperity and stability. In particular, Dr Lopez-Claros addressed four key issues in relation to the subject.
Firstly, Dr Lopez-Claros discussed the issues surrounding global Inequality in terms of wealth and poverty. He cited a statistic indicating that the income per capita of high income countries is $41,000 today whilst that of the low income countries is $580. He stressed that despite the higher average GDP growth rates experienced by low income countries, this income gap will continue to widen into the future and highlights a number of consequences from such a widening. Firstly, he argues that this inequality would lead to a drainage of entrepreneurial talent from low income countries towards high income countries which perpetuates this inequality. Secondly, he contends that income inequality makes the citizens of low income countries vulnerable to demagoguery, which can subsequently result in political instability and social dysfunction. Thirdly, he advocates that this inequality inhibits equal access to education and opportunity, more generally, on a global scale. As a means of addressing the transition from low-income to high-income status, Dr Lopez-Claros advocates the necessity for policy makers to maintain a long-term perspective. However, he submits that encouraging adoption of such a patient, coherent and persistent view would be difficult given the substantial size of the income gap.
Secondly, Dr Lopez-Claros reflected on the consequences of the recent global financial crisis (“GFC”). He argues that we are still living in the shadow of the global financial crisis (“GFC”) given the unprecedented policy response adopted by governments globally. As an example he indicates that spending by the United Kingdom and the United States in response to the GFC was 60 times that of spending on the Martial plan. Dr Lopez-Claros contends that the key consequence of the GFC was the significant increase in public indebtedness. He argues that this is of particular concern given the prevalent demographic trend of the ageing population, which will subsequently place significant pressures on government medical expenditures and ultimately a country’s fiscal position. In addition, he argues that high debt-GDP ratios could deteriorate over time given future unexpected crises and budgetary issues potentially created by global warming.
Thirdly, Dr Lopez-Claros addressed the issue of whether global governance. A key criticism stressed by Dr Lopez-Claros was the international governance gap, namely, the lack of international mechanisms in place to address the key issues facing the world at present today which are global in nature. Furthermore, he contends that the institutions which potentially can tackle these issues, lack funding and jurisdiction. In addition, he argues that there is no international institution designed to address climate change and the ad hoc measures used to address the issue are largely ineffective.